Author: Lisa Pauline Mattackal
(Reuters) – As soccer fever builds for major tournaments in Europe and the Americas, a petite but vivid part of the crypto world is stealing center stage: fan tokens.
These aren’t your average digital assets, they’re tokens issued by national teams or individual clubs that promise fans a tradable way to interact with their teams.
Activity for tokens linked to participating national teams has surged ahead of the Euro 2024 European soccer championship, which begins on Friday, and the Copa América in North and South America, which begins a week later.
The market value of Chiliz cryptocurrency – the native coin of the Socios blockchain that hosts most of the major fan tokens and thus a broad proxy for the niche sector – has increased to over $1.07 billion from around $687 million at the beginning of the year and According to CoinGecko data, this rate is approaching levels last seen during the 2022 World Cup.
Fan token trading volume has also increased in recent months, reaching more than $170 million on May 24, compared with between $25 million and $57 million for most of January, according to Kaiko data. CoinGecko data shows that the total market value of listed fan tokens is approximately $413 million.
This year’s summer of sport could be a key test for the still nascent fan token sector, which typically offers benefits such as lottery entry, early access to tickets, discounts on merchandise or the chance to vote on petite decisions such as matchday songs
Supporters praise the tokens as a infrequent example of cryptocurrency’s real-world utility, while critics highlight tensions between the stated purpose of the team’s involvement and the speculative – and risky – nature of the tradable asset.
A Chiliz spokesperson said the company’s marketing clearly states that “fan tokens are fan engagement tools and should be used for that purpose.”
The price of the Portuguese fan token is up about 2% in the last 30 days to $2.94, while the Argentine token briefly hit a 2022 high of $2.46 – although both are still trading below their highs reached around World Championships in 2022.
“There has been a significant increase in trading volume, but we expect it to be short-lived,” said Jag Kooner, head of derivatives at Bitfinex, pointing to a decline in trading after the World Cup.
Many top soccer teams and sports stars promoted crypto assets – such as non-fungible tokens (NFTs) or fan tokens – to fans during the previous cryptocurrency boom in 2021, drawing the ire of critics who warned they could encourage financial speculation.
British lawmakers warned last year that the rise of NFTs in sports was putting fans at risk of financial harm and potentially damaging clubs’ reputations. Meanwhile, the England and Wales Supporters’ Association has rejected fan symbol partnerships as “an attempt to cash in on frivolous issues” or “introduce financial barriers to true fan engagement”.
COMMITMENT AND SPECULATION
Changes in token volume and price don’t always match team performance, noted Adam McCarthy, research analyst at Kaiko.
“I see no evidence that holders of these tokens benefit from holding these tokens as a bet on the success of a given team,” he added.
A study examining fan token trading around major sporting events found that it often follows the “buy the rumor, sell the news” pattern found in classic finance. Volumes and profits typically enhance before major tournaments and then decline at the start of major matches.
On the other hand, another study found that fans who purchase tokens tend to take advantage of the benefits offered by voting on club-related decisions.
“When fans have a chance to influence club decisions, they engage substantively,” said Lennart Ante, who worked on both studies and is CEO of the Blockchain Research Lab.
“The dual nature of fan tokens as engagement tools and speculative assets creates a dichotomy,” Ante added. “The future of fan tokens may depend on the evolution of distribution between engagement-minded users and speculators.”
SLOW GROWTH EVEN AFTER TOKENS APPEAR
The development of tokens linked to club sites, rather than national teams, remains leisurely.
At the same time, the number of fan tokens has increased in recent years, given the ease of launching tokens on blockchains such as , said Bitfinex’s Kooner. Chiliz said it released 80 fan tokens last year.
French soccer giant Paris Saint-Germain, which has a fan token, announced earlier this year that it will become a network validator for the Chiliz Chain blockchain, meaning it will manage and secure part of the chain.
English team Watford FC recently offered investors and fans a 10% stake in the club via digital equity tokens. In addition to equity participation, other benefits include dinners with team members and private tours of the training ground, depending on the level of investment.
